Interpublic Group reported a 12.8% drop in net revenues for the second quarter to $1.85 billion with a net loss of $45.6 million versus net profit of $169.5 million in the prior year quarter.
Organic revenues fell 9.9%. The U.S. region, accounting for 66% of the company’s business held up best with an 8% shortfall, compared to 14%-plus for the UK and APAC regions, 11.1% for continental Europe, 10.4% for Latin America and 14.7% for all other markets.
On an earnings call Wednesday morning IPG CEO Michael Roth said the company was expecting Q2 results to be worse. He also noted that earlier the company believed that Q2 would be the worst 2020 quarter. But given the unpredictability of the pandemic and the global economy there is no assurance that performance will improve in Q3, he said.
Roth said that spending by large clients held up “relatively well,” in the quarter with Healthcare, food, technology and telecom sectors faring best while automotive and financial services were among the harder hit categories.
Like the other holding companies, IPG has imposed substantial cost-cutting to remain financially sound during the pandemic. There were layoffs across most of the firm’s agencies and $55 million in severance payments in the quarter. Total headcount stood at 52,000 at quarter’s end, down 4% or close to 2,100 fewer employees versus a year ago.
The company took a $112.6 million restructuring charge in the quarter that is expected to result in $80 million to $90 million in annualized savings going forward. An additional restructuring charge of between $90 million and $110 million is expected in the second half.
But one thing is certain, Roth said, which is that there will be dramatic changes to Adland’s operating model in the post-pandemic era. The company has already shed some 500,000 square feet of office space with most of its people working from home in the severest phase of the pandemic. “That isn’t coming back,” he said as many employees will shift to hybrid office-work-from-home schedules on a permanent basis. “We’re learning who has to be in the office and what can be done at home.”
The company expects its real estate footprint to decrease further across the globe. In April, 95% of IPG’s global staff was working from home. Today about 50% of employees in Asia are back in the office at least some of the time. The figure for European workers is between 30% and 40%. Only 10% have returned to offices in the US and UK and less than that in Latin America.
Roth said the new business pipeline is stronger now than earlier in the year, which he interprets as an indicator of “pent up demand.”
The company’s healthcare agencies—accounting for 25% of the holding company’s portfolio—held up best during the quarter, Roth said. Media agencies, particularly Initiative, also fared well.
Events-focused agencies, accounting for nearly 5% of IPG’s business were hardest hit. Their recovery is tied in large part to the return of sports and entertainment in a normal environment where large crowds can gather, still an unknown.
“As we look to the balance of the year, we are confident in the strength of our model and the competitiveness of our offerings, even as marketers continue to face a range of material unknowns related to the pandemic,” said Roth. “These uncertainties include the spread of the virus, its impact on the sentiment and behavior of consumers, on income levels, business supply chains, and the actions of government authorities, including economic stimulus and social support. The environment remains unclear for as long as COVID is a threat to everyday life.”
First half 2020 net revenue was $3.83 billion, down 7% compared to first half of 2019. Organic revenue for the period was down 5%. The company’s stock was up 1% in morning trading on the earnings news.